Do Buy-Side Recommendations Have Investment Value?

Abstract:     
We examine a unique dataset consisting of personal details and investment recommendations for over 1,100 buy-side analysts (predominantly analysts from hedge funds). Short recommendations from these analysts generate an immediate and significant decline in price. Long recommendations have positive short-term returns and exhibit a positive drift. Our collective evidence suggests buy-side recommendations have investment value. We also document that broad institutional ownership decreases significantly for buy-side recommendations, but increases for the buy-side analysts’ employers, suggesting there is a wealth transfer between the broader institutional market and buy-side firms in our sample.

Number of Pages in PDF File: 66

Keywords: Hedge funds, buy-side analysts, sell-side analysts, stock recommendations

JEL Classification: G10, G14

working papers series